by Christopher Graham and Joseph Kelly

As a new year approaches, your business will have new employment laws and regulations to consider. Effective on January 1, 2015, the Occupational Safety and Health Administration, commonly known as OSHA, has some more things for you to worry about.

As OSHA’s website states, “With the Occupational Safety and Health Act of 1970, Congress created the Occupational Safety and Health Administration (OSHA) to assure safe and healthful working conditions for working men and women by setting and enforcing standards and by providing training, outreach, education and assistance.”

There always have been requirements for reporting certain work-related accidents to OSHA. Current regulations require all employers to report “the death of an employee from a work-related incident or the in-patient hospitalization of three or more employees as a result of a work-related incident.” Reporting must be “[w]ithin eight (8) hours” of the incident.

As of January 1, employers must begin reporting every in-patient hospitalization, even involving a single employee, though the reporting deadline is lengthened to 24 hours, from eight.

Employers also must begin reporting every employee amputation or eye loss “as a result of a work-related incident.” The reporting deadline also is 24 hours.

Currently, unless your business is “exempt, if you have at least 10 employees, you also must follow OSHA regulations for keeping records about:

• work-related fatalities;
• work-related injuries and illnesses resulting in days away from work, restricted work or transfer to another job, loss of consciousness or medical treatment beyond “first aid”; and
• significant work-related injuries or illnesses diagnosed by a physician or other licensed health care professional–such as a cut, fracture, sprain, or amputation, and acute and chronic illnesses such as a skin disease (contact dermatitis), respiratory disorder (occupational asthma, pneumoconiosis), or poisoning (lead poisoning, solvent intoxication).

To determine whether you reach the 10-employee threshold, you must consider full-time, part-time, temporary, and seasonal employees.

Businesses considered exempt have included specific low hazard retail, service, finance, insurance or real estate industries.

But exemptions will change on January 1. And so if you have at least 10 employees you should consider whether your business will lose its exemption.

Businesses losing the exemption will include:

• certain real estate-related businesses including building owner-lessors
• material and supply dealers
• equipment rental and leasing companies
• certain retailers

Other businesses may be exempt under the following OSHA list for exemption status. You also can see how your business fits within the North American Industry Classification System or “NAICS,” which will control whether an exemption applies. You can learn more about the NAICS through the United States Census Bureau. And for more information about the new OSHA rules, see OSHA’s website.

It’s also always prudent to consult qualified legal counsel to make sure your business complies with the law.

Tags: OSHA, Occupational Safety and Health Administration, record-keeping, employer, employee, death, hospitalization, amputation, loss of an eye, NAICS

by Christopher Graham and Joseph Kelly

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You own a business. Business is booming! So you need to hire more employees. But you want to know whether anyone you may hire has skeletons in the closet. Is it okay to run background checks? Yes, but be there are limitations.

If you don’t have or follow a policy for background checks that follows state and federal law, you could end up in hot water.

The Equal Employment Opportunity Commission and Federal Trade Commission issued a joint publication earlier this year entitled “Background Checks: What Employers Need to Know”.

Why the EEOC? Because it’s charged with enforcing federal laws that protect applicants and employees from discrimination based on race, color, national origin, sex, or religion, disability, genetic information (including family medical history) and age (40 and older).

Why the FTC? If you use a company in the business of compiling information for background checks, such as a credit or criminal background report), you must follow the Fair Credit Reporting Act or “FCRA”, which is enforced by the FTC.

The joint statement covers what you need to do before you get background information, using that information, and disposing of it. If you run background checks, read it carefully.

Some of the statement’s key EEOC takeaways:

• “In all cases, make sure that you treat everyone equally.” So, if you run checks, run them on everyone.
• Don’t try to get an applicant’s or employees’ genetic information, including family medical history.
• Don’t ask medical questions before making a conditional job offer.
• Although it seems obvious, “Any background information you receive from any source must not be used to discriminate in violation of federal law.” So . . .
• “[A]pply the same standards for everyone . . . .”
• “Take special care when basing employment decisions on background problems that may be more common among people” in a protected class.
• “Be prepared to make exceptions for problems revealed during a background check that were caused by a disability.”
• For criminal background checks, “employers should not use a policy or practice that excludes people with certain criminal records if the policy or practice significantly disadvantages individuals of a particular race, national origin, or another protected characteristic, and does not accurately predict who will be a responsible, reliable, or safe employee.”
• Keep employment records until either 1-year after creation or 1-year after a personnel action, whichever is later—unless you’re a state or local government, educational institution, or federal contractor and, thus, subject to longer record keeping requirements. If you’ve been charged with discrimination or been sued, you’ll have additional preservation obligations.

Some key FTC takeaways about reports from third parties:

• Tell the applicant or employee you might use the information for decisions about his or her employment” – in a stand-alone written notice, not in an employment application.
• Get the applicant’s or employee’s written permission for the background check (okay to include in the written notice).
• For reports based on personal interviews about a person’s character, reputation, characteristics and lifestyle, you must tell the applicant or employee of his or her right to a description of the investigation’s nature and scope.
• Certify to the third-party investigator that you provided the required notice, have permission, complied with the FCRA, and won’t discriminate against the applicant or employee, or otherwise misuse the information contrary to federal or state equal opportunity laws or regulations.
• You must provide the applicant or employee notices if you intend to make an adverse employment action (such as firing or not hiring someone) based on the third-party background information, including (1) the consumer report you relied on and (2) a copy of “A Summary of Your Rights under the Fair Credit Reporting Act” which should have been provided by the company selling you the report.
• After you take an adverse employment action based on the third-party background information, you must notify the applicant or employee that he or she was rejected because of information in the report, certain contact information about the company that sold the report, and other related information.
• You may dispose of third-party reports if you’ve met all other recordkeeping requirements, but disposal must be secure.

What else do you need to know? You also better check the law in each state where your business intends to hire employees. State law likely has additional requirements.

For example, where we’re located, the Illinois Human Rights Act, subject to certain exceptions, restricts employers, potential employers, and others from inquiring into or using the fact of an arrest or criminal record information for hiring and other employment-related decisions. See 775 ILCS 5/2-103. The Human Rights Act, however, doesn’t prohibit the employer and others “from obtaining or using other information which indicates that a person actually engaged in the conduct for which he or she was arrested” Id.

Since 2011, the Illinois Credit Privacy Act, subject to certain exceptions, has restricted “employers” from inquiring about an applicant’s or employee’s credit history, ordering or obtaining an applicant’s or employee’s credit report from a consumer reporting agency, or discriminating against any person concerning employment, compensation, or a term, condition or privilege of employment because of the person’s credit history or credit report. See 820 ILCS 70/10(a).

The Credit Privacy Act excludes certain types of employers from being “employers” under the Act, such as banks, insurance companies, debt collectors, and certain state and local government entities. And it “does not prevent an inquiry or employment action if a satisfactory credit history is an established bona fide occupational requirement of a particular position or a particular group of an employer’s employees.” Id. at 70/10(b).

But if you think that you get to decide whether credit history is a “bona fide occupational requirement,” think again. The Act tells you whether it is or isn’t. Examples of when it’s bona fide include when state or federal law requires bonding for the position or the job duties include custody of or unsupervised access to cash or marketable assets of at least $2500 or signatory power of business assets of at least $100 per transaction, setting the direction or control of the business, or access to personal or confidential information, financial information trade secrets.

For an overview of background check legal variations nationwide, see an excellent post by Jackson Lewis law firm here.

Bottom line: if you’re going to do background checks, make sure you know what you’re doing. Consult qualified counsel about state, federal and any local requirements.

Tags: employee background checks, applicant background checks, Fair Credit Reporting Act, FCRA, Federal Trade Commission, EEOC, criminal background checks, credit reports, Illinois Credit Privacy Act, Illinois Human Rights Act

by Christopher Graham and Joseph Kelly

George Herbert Walker Bush. James Baker. John Major. Frank Carlucci. These are a few of the political figures reportedly associated with the global private equity firm known as the Carlyle Group.

Carlyle even has been in the movies. Michael Moore’s Fahrenheit 9/11 claimed that Carlyle was in essence one of the United States’ largest defense contractors, while also having an association with the Bush family and taking investments from Bin Laden family.

Today’s post isn’t movie worthy. But it’s at least blog worthy.

Back in 2006, the Carlyle Group, like other private equity companies, set up a company to invest in residential mortgage-backed securities. It seemed like a good idea at the time, right?

The shares of the company, known as Carlyle Capital Corp., were sold in private placements and then in public offerings and public trading. But, as you know—unless you’ve been living under a rock—the market for those investments collapsed in 2008. Carlyle Capital then bit the dust. And its investors, shareholders, and liquidator sued various “Carlyle” limited liability companies involved with Carlyle Capital, including one working under an investment management contract.

The LLCs naturally had professional liability insurance, including primary coverage and multiple tiers of excess coverage.

The LLCs bargained for a broad definition of Professional Services Claim and Professional Services so they’d have the broadest professional liability insurance coverage.

Professional Services included “the giving of financial, economic or investment advice regarding [a wide-range of] investments . . . ,” “the rendering or failure to render investment management services . . . ,” “the organization or formation of, the purchase or sale or offer or solicitation or for purchase or sale of any interest(s) in, the calling of committed capital to, a Fund or prospective Fund,” and “the providing of advisory, consulting, management, financial or legal advice or other services for, or the rendering of any advice to, or with respect to an Organization or Fund . . . or a Portfolio Entity . . . .”

But Carlyle’s professional liability insurers didn’t want anything to do with Carlyle Capital. Maybe they saw the train wreck coming? Maybe they didn’t? But for whatever reason, Carlyle Capital wasn’t an Insured under the professional liability policy for the Carlyle LLCs. And the LLCs’ policy also provided that “the Insurer shall not be liable to make any payment for Loss in connection with any Professional Services Claim arising from Professional Services provided to the Carlyle Capital Corp.” The exclusion thus incorporated the policy’s broad Professional Services Claim and Professional Services definitions so the Carlyle Capital exclusion was correspondingly broad.

The policy wasn’t a duty-to-defend policy. But Defense Costs were included in the Loss definition. ‘ The Carlyle LLCs demanded that the insurers advance Defense Costs for the suits relating to Carlyle Capital. The insurers said, “No.” So the LLCs sued. The insurers moved to dismiss. Who wins?

“The insurers,” said the court in Carlyle Investment Mgmt. LLC, et al v. ACE American Ins. Co., et al, Case No. 2013 CA 00319 B (D.C. Sup. Ct. May 15, 2014. The insurers had no duty to advance the Carlyle LLCs’ Defense Costs given that the Professional Services exclusion targeted Claims involving Professional Services provided to Carlyle Capital.

As the court stated, the District of Columbia’s “eight corners rule”—requiring comparison of the 4-corners of the underlying complaint to the 4-corners of the insurance contract—controls whether the insurers must advance Defense Costs, just as it controls when the policy includes a duty-to-defend. Applying that rule, the court explained:

Each claim in each complaint arises from the provision of Professional Services to [Carlyle Capital], whether it relates to the alleged false marketing of the shares to private investors . . . , the alleged failure to make required disclosures to purchasers of publicly traded shares . . . , [one LLC’s] alleged mismanagement of [Carlyle Capital] under [a management contract] . . . , the alleged misrepresentation or failure to warn investors and failure to take appropriate actions to maintain adequate liquidity when the market was showing signs of collapse and [Carlyle Capital] was over-leveraged . . . , or the operation of [Carlyle Capital] with divided loyalties by acting as ‘de facto directors’ or ‘shadow directors,’ allegedly for the benefit of other Carlyle interests and to the detriment of [Carlyle Capital] and its outside shareholders . . . .

Further: “To the extent that these claims – or some of them – would be classified as ‘management-liability claims’ in the insurance industry generally or in some other insurance contract, in this contract they are Professional Services Claims arising from Professional Services provided to [Carlyle Capital].”

The LLCs argued that “the Exclusion is narrower than the coverage and was intended to exclude only claims arising from professional services in the nature of those provided by lawyers and accountants (‘E&O’ claims), not ‘management-liability claims,’ such as those alleging acts, errors, or omissions in corporate governance, often referred to as ‘directors and officers claims’ . . . .”

But as the court stated, “Whatever might be true in the insurance industry generally, in this insurance contract, ‘Loss in connection with any Professional Services Claim arising from Professional Services provided to Carlyle Capital Corp.’ was expressly excluded from coverage.”

Several officers and directors of the LLCs also were directors of Carlyle Capital, which reportedly had its own D&O policy. No word on how those D&O carriers fared—but we suspect not well.

Moral of the story: If Carlyle wanted the terms, Professional Services Claims and Professional Services, to have narrower meanings in the exclusions it should have asked for the policies to be written another way or tried other carriers. Some courts have deemed undefined terms to have broader meanings when used in coverage grants and narrower meanings when used in exclusions. But in Carlyle’s policy the terms in the coverage grant and exclusions not only were defined, but defined the same way. A policyholder doesn’t get to pick and choose when contractually defined terms apply to a particular claim—even if the policyholder is part of the Carlyle Group!

Tags: professional liability insurance, errors and omissions insurance, E&O, private equity, advancement, eight corners rule, contractually defined terms, professional services exclusion, District of Columbia, management liability